Director Fee vs. Salary

[tadbubs]

Gottit

[onlyfwds]

hey all...

sorry to dig up this old post but i was searching all over the place for doubts i have and this thread was the closest.

so I am on DP in Singapore. I wanted to set-up company and as per revised ACRA rules, DP holder cannot be director or shareholder. So i've set-up company with my local citizen friend as nominee director (0% shares) and another EP person as 100% shareholder. company incorporated, I got LOC and most probably for some time, I'm gonna be the only employee on board.

I was setting up payroll for company since company is going to pay me salary and will have to contribute for skills dev levy as well. I have following doubts:

my friend is nominee director. he is not actively taking part in business and just helping with signatures as and when needed. I'm not paying him anything right now. Might pay him after a year if business goes well. So at the moment,

1. do I need to add him as employee in payroll system?
2. If i have to add him, can i put $0 as salary?
3. And if i'm paying him at the end of year, can i pay him as director's fee/renumeration via AGM?

thanks in advance

[Strong Eagle]

hey all...

sorry to dig up this old post but i was searching all over the place for doubts i have and this thread was the closest.

so I am on DP in Singapore. I wanted to set-up company and as per revised ACRA rules, DP holder cannot be director or shareholder. So i've set-up company with my local citizen friend as nominee director (0% shares) and another EP person as 100% shareholder. company incorporated, I got LOC and most probably for some time, I'm gonna be the only employee on board.

First, you information is incorrect. Technically speaking, there is nothing in the ACRA regulations that would prevent a DP from becoming a director. However, over time, MoM has decided that an LOC is for employees and a director is a manager, not an employee, so therefore, they will not issue the LOC. So, you are correct on this point.

You are wrong about being a shareholder. You can be a 100 percent shareholder in your company if you wish to be. There are virtually no restrictions on who can hold shares in a Singapore private limited. When you give someone else all the shares, they now both own and have complete control over the company. You don't want to do this. Own all your own shares.

I was setting up payroll for company since company is going to pay me salary and will have to contribute for skills dev levy as well. I have following doubts:

my friend is nominee director. he is not actively taking part in business and just helping with signatures as and when needed. I'm not paying him anything right now. Might pay him after a year if business goes well. So at the moment,

1. do I need to add him as employee in payroll system?
2. If i have to add him, can i put $0 as salary?
3. And if i'm paying him at the end of year, can i pay him as director's fee/renumeration via AGM?

thanks in advance

He must be registered as a director in BizFile at ACRA, and he will be considered the managing director since there is only one. He has absolute authority to run the company any way he wants. Your only recourse, as a shareholder, is to replace the director. You should have a pre-signed, undated letter of resignation, should you and your director disagree.

Unless you pay him, you do not need to carry him as an employee, nor file an income tax or CPF reports. People don't usually work for free and IRAS does have an idea of what people earn in various situations, but considering that you are running a small potatoes operation, I doubt IRAS wil pay any attention.

Directors fees, salaries, bonuses, expense reimbursements, etc, are all set at an AGM/EGM where they are voted upon by the shareholders (do you understand now why you have no control over the company if you don't own the shares?). As soon as you set a date for payment, the money due the director is treated as fees, salary, to him regardless of when he actually receives the money.

You will have to file IR8A for you and for the director if paid fees. If the director is paid a salary, you will also need to pay CPF for the director.

One thing you can consider in lieu of holding an AGM and retroactively paying director fees is to agree to a set amount for fees over the course of the year, then setup a liability account for directors fees due. This way, you acknowledge that you owe the director money on the books, and you list directors fees as an expense.

[onlyfwds]

Thanks a lot Strong Eagle for your detailed reply.

You are wrong about being a shareholder. You can be a 100 percent shareholder in your company if you wish to be. There are virtually no restrictions on who can hold shares in a Singapore private limited. When you give someone else all the shares, they now both own and have complete control over the company. You don't want to do this. Own all your own shares.

I remember getting info while checking up for LOC that if I own shares in a company, i cannot get LOC. But anyway, in this company, shares are held by family member so it's within family. And director is good friend.

But since I am troubling him so much over all legal matters, I wanted to pay him a token amount as a thank you for all his help.

You should have a pre-signed, undated letter of resignation, should you and your director disagree.

do i need this even if i have 100% shares with me?

[Strong Eagle]

Thanks a lot Strong Eagle for your detailed reply.

You are wrong about being a shareholder. You can be a 100 percent shareholder in your company if you wish to be. There are virtually no restrictions on who can hold shares in a Singapore private limited. When you give someone else all the shares, they now both own and have complete control over the company. You don't want to do this. Own all your own shares.

I remember getting info while checking up for LOC that if I own shares in a company, i cannot get LOC. But anyway, in this company, shares are held by family member so it's within family. And director is good friend.

This is probably one way that MoM is restricting the LOC. The rule would be that you cannot get a LOC in a company for which you own the shares... as I mentioned earlier, LOC implies that you are an employee. But be clear, the companies act and ACRA allow you to own all the shares you want.

In my experience, people who have gone the LOC route have done it using a sole proprietorship while those forming a Pte Ltd typically go the EP route.

But since I am troubling him so much over all legal matters, I wanted to pay him a token amount as a thank you for all his help.

You should have a pre-signed, undated letter of resignation, should you and your director disagree.

do i need this even if i have 100% shares with me?

Your director can do anything with the company, include selling it to someone else, spending funds, you name it. The purpose of the letter is to ensure that if a director were to take an action, say, on June 30, you could have a letter that you would date as June 25, thereby showing that he was not a director and therefore could not take the action on behalf of the company.

[kendrawph]

This is not quite correct. Director's fees and salary are taxed at exactly the same personal income tax rate, assuming you are taxed at resident rates... more than 183 days.

Director's fees are not subject to CPF withholding.

My accountant tells me that if I am a director, all my salary is directors fees, so even when I am working on a project I get paid as a director. I have two cost of sales accounts for my projects... salaries (for others) directors fees for me.

Yes, you are right. Another down side of director fee is that, it is more troublesome to claim child care leave. You have to submit lots of document just to claim the leave. With salary, the respective department just need to view your CPF submission, and the claim is on the way.

[xinying257]

Hi all, have a few burning qns to ask. If I am a director, shareholder and employee, am i covered under employment act since I would be under contract of service?

[sundaymorningstaple]

Depends on what you salary level is (salaries not director's fees).